Combined Insurance Company of America (CICA), Re

Neither Financial Services and Markets Act 2000 nor the notification regulations required individual notice of a proposed insurance-business transfer to former policyholders whose possible redress claims arose from an unfinished review. The court nevertheless had power to direct such notice as part of its case-management powers. The decision required a realistic balancing exercise. The court had to compare the actual benefit of notification with its disadvantages, including cost, confusion and false hope. Where the benefit to former policyholders and to the independent expert, regulator and court was insubstantial, and the review’s outcome remained uncertain, individual notification was inappropriate.

The transferor sought directions for a proposed transfer under Part VII of the Financial Services and Markets Act 2000. Its UK branch’s general insurance business was to transfer to one transferee and its long-term insurance business to another.

The Financial Services Authority asked the court to require individual notice to approximately 292,930 former policyholders. Their potential interests arose from an ongoing Past Business Review concerning possible mis-selling and other customer detriment. The applicants argued that neither the Act nor the regulations required such notice and that it would be disproportionate. The central issue was whether the court should impose the requested direction before the sanction hearing.

1. Statutory position. Neither Financial Services and Markets Act 2000 nor the regulations made under section 108 required notice of the directions application to be given to the former policyholders. The regulations provided for general advertising and individual notification of specified policyholders, subject to waiver, but did not require notification of creditors or this class of former policyholders.
2. Power to direct notice. The court nevertheless had power, under its ordinary case-management powers, to direct notification to persons who were potentially entitled to be heard at the later sanction hearing under section 110. The existence of that power did not make notification automatic.
3. Balancing exercise. The court had to assess the real, rather than theoretical, benefit of notification and weigh it against the disadvantages. Former policyholders were unlikely to understand the relevance of a general advertisement, but individual notification would have required an explanation of the unfinished Past Business Review. Its uncertain outcome could cause confusion or false hope and generate inquiries unrelated to the transfer. The court also considered the substantial cost of notifying about 290,000 people, while recognising that current policyholders and the independent expert and FSA would provide relevant safeguards.
4. Decision. The benefit of individual notification to the former policyholders, the independent expert, the FSA and the court was insubstantial. The disadvantages outweighed that benefit. The court therefore gave the other directions discussed at the hearing but refused the FSA’s requested direction for individual notification. The parties were directed to address what the notices to current policyholders should say about the Past Business Review, with liberty to apply if agreement could not be reached.

First-instance directions application. No earlier decision is stated in the judgment.